Swiss National Bank (SNB) President Thomas Jordan said the central bank’s currency ceiling on the franc remains essential to protect the country’s economy.
“The minimum exchange rate is very important,” Jordan said on Saturday in Washington, where he attended the joint annual meetings of the IMF and the World Bank. “It remains a crucial tool of our monetary policy in order to avoid a tightening of monetary conditions in Switzerland.”
The Zurich-based SNB implemented the cap of 1.2 Swiss francs per euro in September 2011, after the franc came close to parity with the bloc’s currency. The franc has depreciated about 2.5 percent versus the euro since the European Central Bank announced an unprecedented bond-buying program in September last year to defend the euro.
This has allowed the SNB to hold off from intervening in currency markets to protect the limit for more than a year, Jordan said earlier this week, adding that the measure remains in place if needed.
Last year, the SNB spent 188 billion Swiss francs (US$255 billion), the equivalent of nearly a third of Switzerland’s annual output, buying foreign currency to defend the ceiling.
Without the cap, the economy would have suffered a recession, Swiss policymakers have said, and they have also repeatedly stressed there is no risk of inflation for the foreseeable future.
The “euro-Swiss exchange rate is a little bit above the minimum exchange rate, we still have a very strong currency,” Jordan said.
“We have a relatively stable situation with respect to the exchange rate,” he said. “The Swiss franc is highly valued, it should in a way depreciate over time. Even under the situation at the moment with the discussion over the fiscal situation in the US, the exchange rate remained above the minimum exchange rate of 1.20 to 1 euro.”